The Internet of Things is expected to transform industrial production within the next decade. The idea of a fourth industrial revolution – sometimes referred to as ‘Industry 4.0’ or ‘the industrial internet’ – is taking hold. The transformation will see the entire value chain connected digitally, allowing autonomous factories to build products tailored to individual consumers. Internet-enabled chips equipped with sensors will be embedded at every stage of the process, making rich streams of information available in real time. Big data analysis and machine learning will make it possible to use this data to build a value chain that is entirely flexible. The Internet of Things has the power to change the world in the manner of mechanisation of the textile industry in the 18th century, the introduction of mass electrically powered production at the turn of the 20th century and the widespread adoption of computers in manufacturing in the 1980s.

The future of manufacturing will be characterised by:

  • increased customisation of products;
  • the emergence of vertically and horizontally integrated value-added networks that include customers and suppliers;
  • the bundling of manufacturing and internet-based services; and
  • real-time optimisation of manufacturing processes according to flexible goals, for example optimal time-to-market or optimal margin

The change goes beyond simply embedding sensors that provide information about supply levels or machine status. The goal is a production system that runs itself, builds products in batches of one and makes manufacturing vastly more efficient and cost-effective. The economic ramifications are vast. Industry 4.0 is expected to lead to efficiency gains of some 30 per cent, while GE estimates that the Internet of Things could potentially add $10tn to $15tn to global GDP over the next 20 years.

How the ‘smart factory’ will work

  • Manufacturing facilities will become modular. Using standard interfaces and intelligent infrastructure it will be possible to efficiently reconfigure production facilities through the exchange of equipment modules (‘plug and produce’).
  • Manufacturing becomes a decentralised, autonomous process. Resources will carry a digital ‘product memory’ containing all the information necessary to make the finished product, and will communicate autonomously with production and distribution facilities as they move through the value chain.
  • Through continuous data exchange and machine learning, smart machines will control their own use, learn to work more efficiently and will identify mistakes more quickly. They will order supplies based on real-time analysis of future demand and plan their own service intervals and replacement based on actual wear, significantly reducing downtime as a result.
  • Employees will be able to find a customised product in the production process and identify the upcoming steps and time remaining to completion. They will be able to do this via mobile devices, meaning they will no longer have to be present on site. Customers will also be given access to this information to enable them to track their goods.
  • The boundaries between individual facilities will fade as multiple factories and even entire regions become part of a single network. This will disrupt supply chains, transforming them into flexible value-added networks where manufacturers and suppliers interact on a co-operative basis. Competition between enterprises could be replaced by competition between networks, giving rise to completely new business models.

Technical prerequisites

For Industry 4.0 to become a reality, a number of technical prerequisites have to be in place. This will require considerable investment.

  • Standardisation. Electronic, mechanical, IT and data interfaces need to be standardised to allow objects, products, machines and humans to interact.
  • Big Data. Real-time analysis of vast quantities of data will require a huge increase in data processing capacity (20-fold by 2020).
  • Communication infrastructure. Industry 4.0 will depend upon a comprehensive, robust, reliable and secure communication infrastructure. This will require a massive build-out of infrastructure, both short-distance (eg Wireless Local Area Networks) and long-distance (landline and mobile telecommunications networks).
  • IT security. The security and integrity of data within Industry 4.0 networks is crucial. Breaches that could lead to data loss, theft of intellectual property and manipulation or sabotage of the production process must be prevented.

Legal challenges

A vast array of legal issues will arise as part of this transformation. Below are just a few examples.

  • Product liability. How can liability for the malfunction of a product manufactured through complex machine-to-machine (M2M) processes be allocated within an interconnected value chain that involves multiple customers, suppliers, OEMs and manufacturers?
  • Legal form. Which new business models will arise in the context of the value chain network, and what is their most suitable legal form?
  • Competition law and standardisation. What structures will be necessary to ensure transparent and open access to the technical standards that will enable interoperability, particularly when most of these standards will be created by private initiatives and (groups of) enterprises?
  • Data ownership. Who owns the data generated by a resource or machine during the production process or subsequent use? How is it protected?
  • Data protection and cyber security. Who is entitled to use that data, and to what purpose? Which national or international regulatory regimes for data protection and cyber security apply to data generated and used within global networks?
  • Telecommunications law. To what extent will telecommunications regulatory law apply to data communication in the industrial context?
  • Protection of intellectual property. How can a company effectively protect its know-how in an open network in which third parties can access production processes, and interconnected machines communicate with third-party resources? Can sufficient protection be achieved under current statutory law or by contractual agreements, or will new legislation be necessary?
  • Employment law. Will current employment law be sufficient to govern the future need for a highly flexible workforce engaged in remote operation of customised production processes?